A few years ago, following a meeting at the Rockefeller Foundation on creating better alignment between the newly emerging impact investing sector and the traditional economic development sector, I found myself ruminating about the challenges faced. In my mind, I sorted the challenges this way:
We need each other, but we irritate and exasperate each other…
The hyperbole that existed a few years ago moderates. We learn from each other…but we still exasperate each other.
We make real progress on the ground and in the sky by cross pollination.
I am happy to report we are making progress, if slowly, and may be dropping the curtain on Act Two and raising it on Act Three. Idealism, intelligence, hard work, stick-to- it-iveness and more abound on both sides, but I believe the most successful niche may be the hybrid group emerging in the middle.
Below is what I see as the cultural norms of the actors involved that might continue to get in the way of a more aligned relationship:
Impact Investing | Development Finance |
Poverty is a market opportunity | Poverty is a market failure |
Ivy-centric alum clubs, MBAs and McKinsey grads, attendees at CGI, WEF, Skoll Oxford confabs | Church basements, CDFI heads, bank crossovers, women religious and community organizers, attendees at Federal Reserve, OFN, HPN confabs |
Draws on global investment banking and consulting | Draws on community banking, social activism and urban real-politik |
The market = global finance, info tech | The market = homes, real estate and manufacturing jobs |
Think Global | Act Local |
“we’re educated, financially privileged, want to give back and have big ideas and great connections…” | “…we’re street smart, battle scarred and have a track record of putting $$ on the street successfully….” |
Global capital markets and products will eradicate poverty | Global capital markets and products have accelerated poverty |
Geographic footprint: virtual and global | Geographic footprint: place-based and local |
We are financing a growing private sector… | We are financing government receivables… |
Top-down investment (capital market products seeking exposures) | Bottom-up investment (financing needs seeking appropriate financing tools) |
Wholesale | Retail |
Deadly Perils: Arrogance and condescension | Deadly Perils: Sanctimoniousness and low expectations |
Market focus on large market opportunities (i.e., micro-lending growing to fill retail banking needs of growing unbanked middle class) in developing economy | Market focus on large market failures (i.e., CDFIs providing banking where bank economics make lending problematic and regulatory pressure is high) |
Average age: 40+ | Average age: 50+ |
Private Banking | Retail Banking |
Asset classes define the market (top down) | Real “deals” in aggregate define the market (bottom up) |
Financial Product Innovation | Track Record |
The ship’s bridge | The ship’s engine room |
Era: Venture Capital, tech bubble, Private Equity, Hedge Funds | Era: The Great Society, place-based organizing, CRA and the CDFI Fund |
Data and “what works” (with stories…) | Experience and stories (with data…) |
Capital from: HNW Individuals, Foundations, Government | Capital from: Banks, SBA, Pension Funds, U.S. Treasury |
Read more reflections from Heron on aspects of our work and the many reasons we do it.